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Extra Space Storage Inc. (NYSE:EXR) Q1 2024 Earnings Call Transcript

Extra Space Storage Inc. (NYSE:EXR) Q1 2024 Earnings Call Transcript May 1, 2024

Extra Space Storage Inc. isn't one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).

Operator: Good day, and thank you for standing by. Welcome to the First Quarter 2024 Extra Space Storage Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speakers’ presentation, there will be a question-and-answer session. Please be advised that today’s conference is being recorded. I would now like to hand the conference over to Jared Conley, Vice President of Investor Relations. Please go ahead.

Jared Conley: Thank you, Michelle. Welcome to Extra Space Storage's first quarter 2024 earnings call. In addition to our press release, we have furnished unaudited supplemental financial information on our website. Please remember that management's prepared remarks and answers to your questions may contain forward-looking statements as defined in the Private Securities Litigation Reform Act. Actual results could differ materially from those stated or implied by our forward-looking statements due to risks and uncertainties associated with the company's business. These forward-looking statements are qualified by the cautionary statements contained in the company's latest filings with the SEC, which we encourage our listeners to review.

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Forward-looking statements represent management's estimates as of today May 1, 2024. The company assumes no obligation to revise or update any forward-looking statements because of changing market conditions or other circumstances after the date of this conference call. I would now like to turn the call over to Joe Margolis, Chief Executive Officer.

Joe Margolis: Thanks, Jared, and thank you everyone for joining today's call. As many of you know, Jeff Norman has transitioned into another role within the organization as the Head of Treasury and Capital Markets. Many of you on this call have worked with Jeff and experienced his professionalism, responsiveness, fast knowledge and good nature. I recognize and appreciate his efforts to make Extra Space, a leader in the industry and look forward to his continued contribution to the company. I would also like to introduce Jared Conley, our new Vice President of Investor Relations. Jared has been with Extra Space since 2002, and has worked in various roles most recently as our Head of Financial Planning and Analysis. We look forward to introducing him in person next month at NAREIT.

Turning to this quarter's performance. We have seen sequential improvement in occupancy and rate since our fourth quarter earnings call in late February. Operationally, occupancy at the Extra Space same-store pool grew every month during a period normally recognized for seasonal declines ending the quarter at 93.2%, a 50 basis point increase year-over-year. Our revenue strategy has allowed us to both improve occupancy and average move-in rate in the quarter with the latter growing sequentially by approximately 8% from a seasonal low in January. The combination of improving move-in rate, higher occupancy and steady existing customer rate increases have provided a 1% lift in Extra Space same-store revenue performance, which is in line with our internal projections.

An aerial view of a self-storage facility, its parking lot full with cars and RV's.
An aerial view of a self-storage facility, its parking lot full with cars and RV's.

Also as expected, Extra Space same-store expense growth increased by 5.5% year-over-year. The legacy Life Storage same-store pool performance continues to improve outpacing the Extra Space same-store properties. Revenue gained 1.7% year-over-year, which was in line with internal projections and against the backdrop of a difficult comp, where prior management pushed hard on rates in 2023 at the expense of occupancy. Occupancy at our Life stores improved to 92%, a 220 basis point improvement over last year, narrowing the gap between pools to 120 basis points at quarter end. At the end of April, this gap which was over 400 basis points in closing, has further narrowed to 90 basis points on our platform. To do so, we have maintained lower rates through the quarter with the strategy of higher occupancy leading to stronger new and existing customer rates through the remainder of the year.

We believe improved rate performance will continue to lift these properties and ultimately bring them to parity with legacy Extra Space store, rate, and occupancy levels. Life Storage same-store expenses increased 6.7% year-over-year also due to an exceptionally hard 2023 comparable, but below internal projections. Expenses increased particularly in the areas of payroll and repairs and maintenance as we address areas that were underinvested at this time last year. On the external growth front the transaction market continues to be muted. However, we expanded our capital-light external growth activities adding $164 million in new bridge loans meaningfully ahead of our projections. In addition we added 97 third-party managed stores gross and 72 stores net.

We continue to have the fastest-growing third-party management platform in the industry. Overall, the year is unfolding as expected with wins in capital-light growth and G&A and expense savings. We are working hard and I am confident of our teams and infrastructure are well prepared to optimize performance during the important upcoming leasing season. I will now turn the time over to Scott.

Scott Stubbs: Thanks Joe and hello everyone. As Joe mentioned, we had another good quarter driven by steady revenue, G&A savings, and better-than-expected property operating expenses, specifically property taxes. The G&A savings have been from a broad range of categories as we continue to seek efficiencies and capitalize on our greater scale. As mentioned in our prior call, we closed a $600 million bond offering in the quarter at a time when interest rates were more favorable than the current environment. Proceeds were used to repay the bridge loan that we used to acquire Life Storage and the offering helps reduce our exposure to variable interest rate debt. Our balance sheet is in great shape and we have plenty of dry powder to capitalize on an improving transactions market.

Due to the in-line nature of same-store performance, we are not making any revisions related to property operations. We will update our property guidance after the second quarter once we see how the leasing season progresses and how much pricing power we gain. We do expect to see continued savings in G&A and have adjusted our annual assumptions accordingly. We have also adjusted our annual average SOFR assumption, increasing interest expense, which is partially offset by increases in interest income from our bridge loan program. We are encouraged by the outsized rental volume year-to-date and the high occupancy at our stores and we should be in a great position to maximize the performance at our properties as we move into the rental season.

With that, Michelle, let's open it up for questions.

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To continue reading the Q&A session, please click here.